Investors are in a celebratory mood as the Straits Times Index (SGX: ^STI) hit a new record recently. The bellwether blue-chip index surpassed 4,000 for the first time last month and has since broken past the 4,200 mark. Along the way, DBS Group (SGX: D05) also hit a new milestone by briefly touching S$50 per share. This feel-good sentiment has pushed the share prices of many blue-chip companies to their 52-week highs.Can this rally be sustained and will the STI break new records from here?

Earnings and dividend momentum

The STI is made up of the 30 largest companies on the Singapore Exchange (SGX: S68). The three local banks make up more than half the index, with the other 27 companies making up the rest. When companies report higher earnings and increase dividends, their share prices tend to follow. And right now, that is exactly what we are seeing.

Better earnings, stronger dividends

Keppel Ltd (SGX: BN4) saw its underlying net profit surge by 25% year on year to S$431 million for the first half of 2025. SGX itself posted an adjusted net profit of S$609.5 million for fiscal 2025, up nearly 16% year on year. Not surprisingly, their share prices have climbed 24% and 29% year-to-date, respectively. It is not just earnings. Dividends are rising too. SGX raised its final dividend by 16.7% and signalled plans to grow payouts every year through FY2028. Singapore Technologies Engineering (SGX: S63) has also committed to incremental dividends tied to profit growth. Even REITs are joining in. CapitaLand Integrated Commercial Trust (SGX: C38U) increased its distribution per unit by 3.5% year on year to S$0.0562.

The path is rarely a straight line

While the news flow has been positive, markets never go up in a straight line. Trump’s proposed tariffs, stubbornly high interest rates, and other macroeconomic headwinds could trigger short-term pullbacks. Volatility is the price investors pay for healthy long-term returns. With more STI companies delivering higher profits and dividends, the index’s foundation for future gains looks stronger than ever. One step at a time, the STI can keep building on its record highs.

How we are navigating this market

At The Smart Investor, we follow a disciplined income investing approach, focusing on high-quality dividend stocks that can grow earnings and payouts regardless of short-term noise. It is the same strategy we use in The Smart Dividend Portfolio, where our real-money portfolio has delivered $15,602 in dividends and 30.8% in total returns since January 2020. Which SGX companies will reach S$100 billion next? Our latest FREE report provides detailed financial analysis and growth prospects of 5 potential candidates. The results? Surprising. You’ll want to grab a copy now and see whether what everyone else says is true. Click here to download now.Follow us on Facebook, Instagram and Telegram for the latest investing news and analyses!Disclosure: Royston Yang owns shares of DBS Group and Singapore Exchange Limited.